Debt Management: 4 Steps to Manage Your Debt

Being in debt can be an overwhelming and debilitating experience, however, there are many proven debt management solutions available to help you manage your debt and regain your financial security.

Cyber Finance sets out the steps you can follow to take back control of your financial health and well-being.

Step 1: How Much Debt Do You Have                                                       

Knowing where your money goes each month and the total cost of your monthly obligations is the crucial first step in creating a plan to regain control of your finances. Start by making a list of your monthly debit orders, loan repayments and monthly expenses. After that highlight, the payments that go towards paying short-term debts such as credit cards, clothing accounts and short-term personal loans.

This will give you an overview of which debts are costing you the most in Rands and holding you back financially.

Step 2: Choose Which Debts to Pay off First

The main goal of paying off your debt, especially short-term debt, is to try and reduce any credit accounts as the interest costs is often very high. Unsecured debt such personal loans are very expensive because they carry a far higher interest rate than secured debt. For instance, a home loan, where your property serves as security to the bank that you will repay your home loan.

Have a look at your loan statements which should have information about the interest rate you are being charged on the debt to identify the most expensive ones in terms of the interest rate. The higher the interest rate, the more that debt is costing you.

After completing step one you should have a better idea of where your money is going, and which debt is the most expensive. Based on this, plan to pay off your short-term debts first starting with the loans that charge the highest interest rate. If you can’t settle all your short-term debts in one go, rank your loans starting with those that charge the highest interest rates to the lowest interest rate. Pay off your smaller debts with the highest interest rate cost first as this will save more you money, which will allow you to use the additional money to towards your larger debts. You will be surprised how closing a few small clothing accounts or credit cards can leave you with quite a bit of extra money each month.

Trying to pay off all your debts in one go, while ideal, is often unachievable. But the key is to create a realistic payment plan with achievable goals, to allow you to get ahead of your debt and to begin to make a dent in the monthly repayments and interest costs.

Step 4: Create a Budget and Plan Your Expenses

Creating a budget will help you understand the relationship between your income and expenses and give you a good indication of where your money is going and how to cut back. To find out more about how to create a budget and its importance you can read an earlier article called Simple Budgeting Tips to Help You Manage Your Money.

Once you have a basic budget set up, you can ensure you have enough money for your expenses, debts and allow you to attribute ‘leftover’ money to the right place. A budget allows you to quickly see if there is an area that you can cut back on and save.

Budgets also allow you to better allocate and manage your finances on a month to month basis. Importantly, a budget will help you learn whether the money you are spending on entertainment and other non-essentials can continue. You may need to cut back on the fun stuff and allocate more of your entertainment money towards repaying your debt and other essentials, particularly if you run out of money before the end of the month.

Step 4: Recognise That You Need Help

If you have tried all there is and nothing seems to chip away and the mountain of debt in which you find yourself, it may be time to seek professional financial help.

A sure sign of needing help is when most or all of your money goes to paying debt each month and leaves you living on credit just to put food on the table. If that is the case it may be time to reach out to a debt counselling agency which will advise you on the best debt management tool based on your situation. Ensure that you use a debt counsellor that is properly accredited with the regulatory authority and that the counsellor has a good reputation.

There are a number of debt management solutions available such as:

• Debt Counselling – Is where a professional financial manager evaluates your financial situation and provides insight and guidance on how to improve your financial standing. A debt counsellor will also help you negotiate better interest rates with creditors to ensure an affordable financial solution for all.

• Debt Consolidation – Instead of having to pay multiple debts with varying interest costs. Debt consolidation allows you to combine all your debt into one cost-effective loan that requires you to make only one affordable monthly payment. It is a simple solution which simplifies debt management.
• Debt Restructuring – Is the process of renegotiating terms with your creditors to provide you with a better interest rate to meet your financial obligations. This could also include payment holidays, bulk settlements, or increased payback periods. It is important to restructure your debt with the help of a financial professional.
• Sequestration – When the total of all your debts adds up to more than the value of all your assets, you can have yourself sequestrated or, more simply put, have yourself declared bankrupt. This should be a last resort because it will impact your credit record and your ability to obtain credit in future. However, if the value of all your assets is at least 20% compared to the total cost of your debts, you may apply for a Sequestration Order from the court. A debt management company such as Cyber Finance can help guide you through this process.

These solutions are all capable of improving your financial standing and helping you become debt-free.

Debt keeps you from making the most of your money but by following these debt management steps you can take back control of your money, eliminate your debt and gain the financial security you deserve.

Not sure where to begin, book an obligation FREE debt assessment with one of Cyber Finance’s NRC registered debt management professionals by filling in the form on your right.

Alternatively, you can contact us through the channel that suits you best by visiting our contact us page.